Bitcoin has a scalability issue, but there’s hope in solutions

Bitcoin’s ecosystem is changing due to new technology and high fees, requiring scalability solutions. Binance’s latest findings highlight the urgent need to tackle Bitcoin’s scalability challenges.

Bitcoin’s ecosystem is changing due to new technologies and increasing transaction fees. It is becoming increasingly clear that Bitcoin has a scalability problem. Innovations in the ecosystem highlighted in a recent report from Binance reveal that Bitcoin (BTC)’s scalability issues need to be addressed urgently.

BTC scalability compared to Ethereum

According to the report, the value of Ethereum (ETH) is $450 billion, and the total value locked (TVL) in Layer-2 (L2) solutions is $45 billion, representing approximately 10% of its total value.

In comparison, Bitcoin, with a market cap of $1.4 trillion, only has $2 billion in L2 TVL, or just 0.13% of its total value.

This highlights how Bitcoin needs to catch up on adopting effective Layer 2 solutions, which are crucial to increasing its scalability. It is urgent to address these scalability issues to ensure the continued growth and availability of Bitcoin in the face of increasing transaction volumes.

Projects such as Ordinals, Inscriptions, BRC-20 tokens and Runes demonstrate the demand for these features. As a result, BTC’s average transaction fees increased from $1.5 in 2022 to $9.5 in 2024, indicating increased usage and limitations of the network.

Binance’s assessment of Bitcoin’s scalability

According to the report, helping and fixing Bitcoin’s scalability solutions includes addressing various issues such as trustless two-way bridges that will enable seamless and secure asset transfer between layers without intermediaries.

“Due to Bitcoin’s limited smart contract functionality, a trustless two-way bridge was not possible. This means that some form of centralization is often required to move assets from Bitcoin to L2 and back,” the report stated.

In the Bitcoin world, a two-way bridge is like a highway that allows you to move your stuff between the main Bitcoin system and the Layer 2 solution without the need for an intermediary.

Determining whether a solution requires a blockchain fork and balancing interests between users, developers, and newcomers are crucial considerations for improving Bitcoin’s scalability. This will help maintain consistency with Bitcoin’s core principles and infrastructure.

“This means that the viability of Bitcoin scalability projects that rely on fork is relatively limited in the short term,” the report stated.

Emerging solutions and technologies

According to the report, recent developments in the Bitcoin ecosystem such as Taproot and BitVM have opened up new possibilities for Bitcoin protocols. These developments are still in their infancy, but they are laying the groundwork for Bitcoin to increase its scalability.

The report highlighted that Bitcoin-specific projects such as Lightning Network and RGB have taken a leading role in the development of peer-to-peer transactions and other solutions such as sidechains and Ethereum Virtual Machine (EVM) Layer-1s that use bridged Bitcoin as a staked asset. but may contain central components.

The future of Bitcoin scalability

As Bitcoin’s transaction fees increase and its memory pool becomes more congested, the importance of Bitcoin’s L2 solutions also increases. Projects like the Lightning Network represent a great start, but they still have user experience and functionality limitations.

The Bitcoin scalability landscape is poised to evolve significantly in the coming months, with a variety of solutions aimed at solving growing scalability challenges.